The Nifty Pharma index witnessed profit booking on October 14, declining 1.6% as investors reassessed the sector’s earnings outlook ahead of the September quarter results. Pharmaceutical stocks had rallied sharply since the outbreak of the West Asia conflict, supported by expectations that relatively inelastic demand for medicines would provide resilience amid geopolitical uncertainty.

However, concerns over earnings growth and profitability are emerging as key challenges for Indian pharmaceutical companies. Large cap drugmakers are expected to report subdued earnings growth in the second quarter of FY27, primarily due to declining sales of generic Revlimid, a high margin cancer drug, alongside persistent pricing pressure in the US generics market.

During the session, Divi’s Laboratories, Sun Pharmaceutical Industries and Zydus Lifesciences were among the weakest performers in the Nifty Pharma index, with their shares trading between 0.4% and 3% lower around 2:45 pm. Biocon, Wockhardt and Abbott India were among the few pharmaceutical stocks trading firmly in positive territory.

Despite the correction, the technical structure of the Nifty Pharma index remains constructive. Jatin Gedia, Vice President of Technical Research at Teji Mandi Investment Technologies, indicated that the index could find support around 25,400, while 26,500 may act as a resistance level. He noted that the index’s recent strength has largely been driven by stock specific movements rather than a uniform improvement across the sector.

According to Axis Securities, pharmaceutical companies are facing pressure on profit margins from lower sales of generic Revlimid, continued US pricing erosion and increased expenditure on research and development, commercialisation of new products and launches of GLP therapies. These pressures are expected to offset some of the benefits from biosimilar growth.

For the companies covered by the brokerage, revenue in Q2FY27 is projected to increase 7% year on year to Rs 40,903 crore. Growth is expected to be supported by a 10% to 12% increase in domestic formulations following GST normalisation, alongside strong volumes in chronic therapies such as cardiac and anti diabetes medicines. However, profitability is expected to weaken, with EBITDA projected to decline 10% year on year to Rs 8,308 crore and profit after tax estimated to fall 19.6% to Rs 4,331 crore.

The US generics business remains a significant source of earnings pressure for several large pharmaceutical companies. Axis Securities highlighted continued price erosion and the impact of generic Revlimid sales on the performance of Dr Reddy’s Laboratories, Aurobindo Pharma and Cipla. Although volumes across their existing portfolios have remained relatively stable, a limited number of new product launches have restricted growth momentum.

Lupin is also facing increased competitive pricing pressure in the second half of FY27 for Tolvaptan, following a period of limited competition during FY26. In contrast, Biocon is expected to benefit from new biosimilar launches, including Denosumab, Adalimumab, Yesintek and Bevacizumab. Gland Pharma is also expected to gain from US revenues generated by Liraglutide in pen cartridge formulations.

The near term outlook for pharmaceutical stocks will therefore depend on the extent to which companies can offset pricing pressure and declining high margin generic drug sales through domestic growth, new product launches and biosimilar expansion. While the sector continues to benefit from resilient demand for medicines, the divergence in company level earnings performance could lead to greater stock specific movements during the ongoing results season.